StarHill Global – DBSV

Only time will tell

At a Glance

• DPU slightly below expectation pending Toshin’s lease rental reversion

• Healthy reversion for Wisma Atria leases despite AEI works

• Healthy balance sheet and ready for acquisitions

• Maintain BUY at lower $0.71 TP

Comment on Results

Slightly below expectations. Gross revenue and NPI posted flat growths in 4Q11. However, DPU fell 2.9% due to higher tax and finance expenses. Full year DPU was 4% below our forecast on the back of higher property expenses and the absence of additional income assumed from Toshin’s rental reversion. Stripping the latter off, DPU will be a marginal 2% lower.

Wisma Atria new look ready in Sep12. Footfall grew by 9% y-o-y but retail sales were down 4% in the same period due to the commencement of asset enhancement works in Jul’11. However, renewal remained robust with some leases locked in higher rates in excess of 20% compared to preceding rents. Occupancy will remain at 95% for the next two quarters before heading up in 3Q after completion of the AEI works in Sep this year.

Toshin’s lease yet to be resolved. The court has dismissed Toshin’s appeal on the rent review in Jan 2012. SGReit has submitted an appeal against that decision and hearing will take place in Feb 2012. We are assuming flat rental growth vs 10% previously till more clarity and guidance are given.

Balance sheet is healthy. Only 3% (S$27m) of its debts are due for refinancing in FY12 and gearing is a healthy 30.8% after the trust took in S$28m revaluation gain, mainly from Wisma Atria Ngee Ann City but was partially reversed by its Japan Properties.

Recommendation

Maintain Buy at a lower TP of S$0.71. We continue to like SGReit for its undemanding valuation at 0.64x P/BV. We have lowered out TP by 7.9% to S$0.71 and reduced our FY12/13 DPU by 8-9% as we revised down our rental forecast, as well as no conversion of the CPUs till 2016 instead of the earlier 2013. Meanwhile, re-rating catalyst will be from possible accretive acquisitions and better than expected rental reversions.